Letters stamping out Australia Post profits

Australia Post announced a sharp slump in profit on Thursday morning, and added a dire warning about the future of the business.

The government-owned entity said it was likely to overwhelmed by losses in the coming years, mostly caused by its traditional letter delivery services.

The cost of running the sprawling, low margin delivery network dragged this year's total profit down to $116.2 million, a fall of 34.5 per cent from the previous year. In total, letter delivery cost $328.4 million.

The company reported a net loss of $105.9 million for the second half of the year, its first since it was corporatised.

The pre-tax earnings of Australia Post were reported as $518.6 million, up just over 10 per cent from last year. Revenue was also up by 8.3 per cent at 6.383 billion.

Chief executive Ahmed Fahour said Australia Post urgently needed reform to survive after a government-commissioned report predicted the company would incur a $12.1 billion cumulative loss from letter delivery.

"Profit growth in parcels has covered the growing losses in letters again in this full year but possibly for the last time," chief executive Ahmed Fahour said.

"These results are a stark illustration of the urgent need for changes to the regulations governing our Letters service.

"Unfortunately without significant and urgent reform of our community service obligations, the loss in the regulated mail business will overwhelm the entire company and result in the enterprise making a loss in the near future."

The company is also estimated to lose $6.6 billion in enterprise services over the next 10 years.

The rapid growth in parcel delivery rates due to online shopping helped cover the growing losses by bringing in $337.5 million this year, up by 20 per cent.

Australia Post acquired StarTrack parcel delivery services in 2012 as part of a "Future Ready" program.

The company also offers parcel lockers at more 181 locations across Australia, a move launched by Mr Fahour to cut back on the staff costs of multiple delivery attempts.

In late August, business groups and unions came together to lobby against Mr Fahour's proposed changes to its government mandated Community Service Obligations.

Mr Fahour is seeking a radical restructure that would require less frequent delivery of mail and a tiered-pricing system for standard mail services.

In June, Australia Post announced it would cut 900 jobs as it split its parcel and mail businesses. SMH